The Role of Digital Currency in Emergency Circumstances

When the COVID-19 pandemic started in March 2020, the U.S. government provided emergency payments to businesses and the American public. The payments were made swiftly but unfortunately lacked the structure to serve those who were unbanked and unable to receive direct deposits. The most common reason why some individuals are unbanked is a lack of consumer funds. Although some banks do not require a minimum deposit to open an account, many banks do. These are funds the unbanked do not have when living from paycheck to paycheck. In addition, there may be unpredictable fees and charges that make it unaffordable for a percentage of the US population to open a bank account.

A centralized digital currency, together with a digital wallet, could have been utilized by unbanked Americans. A digital dollar would have set a precedent for banks globally to follow in the same footsteps. The financial industry is leaning toward digital services with banks across the globe, rapidly rebuilding after the economic fallout, due to the COVID-19 pandemic. Furthermore, the world is going through an intense competition of exchange rate fluctuations and depreciation. Other countries may convince the international community to switch to an alternative currency when the next worldwide emergency occurs, leaving the U.S. behind.

These are just a few of the many reasons for the financial inclusion of digital assets and the importance of digital-currency structure in emergencies like a pandemic:

  • Online digital currency payments can get stimulus funds to consumers more rapidly.
  • A “cash lite” society can help sustain quarantines, as an economy restarts (reduce disease transmission).
  • Contactless digital payments at the point of sale can make it less likely for a virus to spread to others.

Financial Inclusion of Digital Assets

Financial inclusion has, typically, provided affordable and secure financial services and products to individuals and businesses in responsible and sustainable methods, such as savings, credit, methods of payments, and insurance. Economic empowerment often comes from the ability of consumers and businesses to build credit, hold a savings account, and increase buying power. It would seem that greater financial inclusion of digital assets would benefit these abilities. Although digital assets – from cryptocurrency to stablecoins to central bank digital currencies – have advantages and disadvantages, proper regulation will ease the unknown to consumers, businesses, and investors.

The design of digital-asset platforms has not been part of the traditional banking system. Although there was significant resistance, the banking system has come a long way in accepting digital assets. Businesses, investors, and consumers trust banks and credit unions. The hesitation with the banking system from fully accepting digital assets depends on expeditious guidance, oversight, regulation, and assurance from the U.S. government that digital assets will no longer be considered the “wild west.” Digital assets, for the most part, give retail investors and consumers better access to financial services which can be shared with banks and credit unions. Although digital assets remove barriers imposed by banks and credit unions and provide more control and ownership to individuals, the public is still vulnerable to scams, hacks, and other types of fraud. Rapid creation and deployment of new technology, such as digital currency, may create security risks (use for illicit purposes), but if the digital assets industry can become symbiotic with the financial sector, in addition to prompt regulatory oversight, fraud can be eliminated.  

Responsible Development of Digital Assets

The COVID-19 pandemic has driven increased adoption of digital assets. Given the complexity of many government funding programs, emergency payments cannot always reach businesses and those who need it most – unbanked citizens – fast enough. Although a contactless environment where suppliers and consumer transactions take place virtually is not new, the pandemic brought the practice into sharp focus. The digital economy is here to stay, but whether it will replace the current financial system is not clear at this time. Governments around the world should consider mobilizing the global crypto and digital assets sector to find solutions for faster and broader distribution of emergency funds when the next crisis in the U.S. or worldwide strikes.

To help enable wider use of the digital currency, a government needs to:

  • Educate consumers on what are digital assets and the associated risks.
  • Establish a comprehensive regulatory system to protect investors and consumers (reduce market abuse, market manipulation, and insider dealing).
  • Integrate digital assets into the financial services industry (buy/sell, checking accounts, debit cards).
  • Develop security measures to protect digital assets from phishing attacks, ransomware, and data breaches.
  • Reduce the impact on the environment by producing energy-efficient digital assets.

To Conclude

The COVID-19 pandemic didn't just disrupt our health and daily routines; it exposed the glaring inadequacies in our financial systems, particularly for the unbanked. Financial inclusion through digital assets isn't a mere convenience; it's a transformative tool for economic empowerment. Such a shift can revolutionize credit access, savings, and spending power. However, the path forward isn't without challenges. We need a blend of rigorous education on digital assets, a watertight regulatory framework, seamless integration into our banking systems, and an unwavering commitment to sustainability. As the digital tide rises, it's imperative that governments globally harness its power, ensuring swift and widespread distribution of aid in any future crises. The digital financial revolution awaits – let's embrace it with foresight and responsibility.